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Why Yahoo Should Say No to AOL

A Combined Company Would Only Increase Yahoo's Audience 10%

Even though AOL has not actually reached out to Yahoo on a possible merger, talk around the possibility continues. The Wall Street Journal reported today that AOL has hired financial advisers to explore a strategic "tie-up" with Yahoo. But while Yahoo's board (and institutional investors) may be lured in by the possibility of eliminating a competitor, adding scale and possibly getting Tim Armstrong as CEO, there is a problem: bringing in AOL's audience into a combined mega-portal would actually not significantly benefit Yahoo, at least not in terms of web traffic or users.

Credit: Source: ComScore
Yahoo's September audience was 177 million, while AOL's viewership for that month was 104 million. Due to the overlap in audiences, a combined company would have brought in 197 million for the month of September, according to an analysis by ComScore. AOL would increase its audience as much as 88% in a merger, while Yahoo, which is already much bigger, would only scale its audience by 10%. So why should Yahoo's board vote yes on such a combined entity?

Perhaps a combined company under Mr. Armstrong would yield better results, though that isn't immediately clear from AOL's most recent quarter. Perhaps a combined company would act as a bulwark against the rising tide of Facebook? Even though Facebook has more than 500 million registrants, the immense social network only brought in 148 million people in the U.S. in September, according to ComScore, already lower than Yahoo's 177 million. Perhaps then a combined company would finally be able to overcome the seemingly impossible reach of Google, which had 180 million in September, while an AOL + Yahoo would bring in 17 million more? Otherwise, perhaps they just like Tim Armstrong better? If so, is he really worth that much?

But here's another reason AOL would get more out of this deal than Yahoo: AOL's stock market capitalization is $2.66 billion compared to Yahoo's $21.85 billion.